Written by: John L. Person III.

Commodity Trading Advisor

Top 5 Trading Suggestions

Whether you are trading real investment capital or simply paper trading, it is important to stay organized and disciplined. I would like to provide suggestions in order to help you, because preservation of capital and equity growth is the single most important aspect of trading. Following these suggestions may not alone lead to success, however, not following them could increase your chances of failure.

MY TOP 5 TRADING SUGGESTIONS

1.) Plan your trade then trade the plan. Set your entry price, your risk level, or stop loss, and your profit objective. Don't base your trades on spur of the moment hunches, rumors or stories you hear. Many times the news has already been discounted in the market.

2.) Use risk management guidelines. Be realistic for the amount of total capital you have to trade with compared with the margin requirements you need. For example, if your starting balance is say $10,000.00 and you want to trade 5 contracts of a commodity where the initial margin is $2000. For each contract, you are using $10,000 of margin money ($2,000 X 5 = $10,000). That is 100% of your investment capital for one trade. If the market moved against you you could wipe out most or all of your account. Some money managers suggest using 50% of your investment capital in any one trade and then risking 20% of your initial capital in that trade. With this formula you would be using $5,000.00 in margin on a $10,000.00 account risking $2,000.00 on your first trade.

3.) Understand different order techniques. Many investors know only the basic order types such as price limits, stop loss, and markets orders. There are others such as cancel replaces, one cancel other (OCO), spread order, market on close, market on open, market order if touched (MIT's) and of course open order, good until cancel (GTC). Some are only accepted on certain exchanges and all have specific uses. You should consult your broker as to when and how you should place these different orders. You can also read up on the different types of orders under Trading Tools on my web site.

4.) Be organized, write down your activity. You should use a trade order log - especially when placing orders. When your broker repeats back your order it will include quantity, contract month, specific commodity (full size, mini, or mid am) last price on their quote screen (so you know where the market is at the time your order is placed) your account number and a ticket order number for your records. As a safeguard to protect you from costly errors always listen to what your broker repeats back to you, several reasons come to mind, one you may be thinking sell 1 E-mini S&P at the market, but you say sell 1 S&P at the market. Your broker repeats back the order and you hear big S&P and not "mini". An error has occurred, remember your broker doesn't know what you're thinking only what you say. By writing down what your trade is doing you are less likely to make a mistake.

The benefits of having a licensed broker accepting your orders are that they are familiar with your account, different trading philosophies and strategies, trading terms and phrases taught in different trading courses. They can give investment advice and have experience to catch common mistakes that could cost you thousands of dollars. An unlicensed phone clerk who accepts orders as a "broker's assistant" is legally prohibited from giving investment advice. Clerks just take your order even if they know you' re making an error. So remember, be organized, and write down your activity and listen to what your broker repeats back to you with your order ticket number.

5.) Improve emotions and self discipline. There are three emotions that can hinder your trading: fear, greed, and doubt. Every investor should analyze their own emotional make-up. Many books have been written on this subject, but here is a short summary. If you are trading, only risk capital should be used, specifically that means only money you can afford to lose and accept the fact that you can lose some, all, and even more than your initial investment. If you don't realize this then you might be trading "scared" money and fear of loosing it will keep you from placing well thought out trades, or worse cause you to hesitate and get in the market late after the move is over. Doubting can also cause the same results. Greed can cause some traders to allow good profits to erode back to break even levels or worse, losses, as they were hoping for even bigger gains. Having put on too many trades searching for the "Big Kahuna" or "Motherlode" also stems from greed. There are six words that have been called a "cardinal rule of trading" that requires good self discipline they are "cut losses short, let profits run". I sincerely hope you learn these 5 top suggestions and apply them in your futures trading.

Have a great trading day -

John L. Person